India posted the highest growth in demand for oil products in 13 months in September at 9.9% as the effects of some key economic reforms started to fade, while an uptick in manufacturing and robust auto sales boosted consumption of industrial and transport fuels.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The year-on-year oil demand growth was the highest since August 2016. Oil demand growth has been moderate after November 2016 when New Delhi demonetized 80% of its currency to curb illegal cash transactions.
But analysts said that the after-effects of another key policy reform -- the Goods and Services Tax -- are still being seen.
"Demonetization was an event but GST is a process. I think the after-effects of demonetization for most sectors are over. But as far as GST is concerned, the administrative and compliance challenges are not yet over," said Dharmakirti Joshi, chief economist at CRISIL, a unit of S&P Global. "The government is trying to address that."
India's demand for oil products in September rose to 16.26 million mt, or 4.25 million b/d, driven by gasoline and gasoil, latest data from the Petroleum Planning and Analysis Cell showed.
In September, demand for diesel rose 16.6% year on year to 6.08 million mt, while gasoline demand rose 17.9% to 2.14 million mt.
"Car sales are rising, economic sentiment is improving, and key reforms are likely to benefit India in the long run, as Indians become accustomed to less cash. Things might change only slowly in small villages but big cities -- the main driver of demand -- have already adjusted to new realities," said Ehsan Ul-Haq, director at Resource Economist.
Over January-September, while gasoline demand grew 5% year on year to 18.83 million mt, diesel demand rose 1.5% from a year earlier to 58.32 million mt.
"With the monsoon season now behind us, and with signs emerging that the economy is picking up, India's oil demand should strengthen over the next few months," said Lim Jit Yang, director for oil market analysis for Asia-Pacific at PIRA Energy Group, a unit of S&P Global Platts.
He added that India's economic growth should start to improve as its manufacturing PMI remained at 51.2 in September -- staying above the 50-mark for two successive months after dipping to 47.9 in July because of GST.
"We are expecting an average oil demand growth of 35,000 b/d this year in India, before posting stronger growth of 250,000 b/d next year," PIRA's Yang said. LPG, JET FUEL
LPG demand in September grew 4.1% year on year to 1.95 million mt. But in the first nine months of 2017, LPG consumption was up 7.9% year on year to 16.92 million mt.
"Despite the 5% goods and services tax imposed on household LPG from July 2017, the government's deposit-free new LPG connection scheme is keeping demand strong," Facts Global Energy said in a research note. "There is, however, potential downside risk to the stellar demand growth in the medium term, especially after the scheme expires in early 2019."
FGE added that gasoline consumption rose in September as two-wheeler and passenger vehicle sales grew by 9.2% and 11.3% year on year, respectively. "Post-GST implementation, automobile companies lowered vehicle prices, particularly for two-wheelers and small cars, in line with lower taxes, passing the savings to the consumers," FGE added.
In addition, gasoil consumption expanded on the back of surging commercial vehicle sales, which grew 25.3% year on year in September, the steepest increase in six years.
"This signals a rapid recovery in manufacturing and construction activities after a slowdown in H1 2017," FGE said. "Gasoil demand is forecast to grow by an average of 3.2% year on year through 2018, led by the overall recovery in economic growth."
Jet fuel demand continued to remain buoyant, rising 7.1% year on year to 615,000 mt. Over January-September, jet fuel consumption grew 9.7% year on year to 5.54 million mt.
In September, naphtha demand grew 4.9% year on year to 1.16 million mt. Consumption of kerosene fell sharply by 33.5% year on year to 333,000 mt, while fuel oil demand dropped 14% year on year to 573,000 mt, PPAC said.